US: Surge in inflation to reinforce USD strength – MUFG

Today is a big day for the US rates market with the CPI data for November released. According to economists at MUFG Bank, if the US data go on surprising to the upside, the greenback is set to enjoy further gains. 

CPI in focus ahead of FOMC next week 

“The consensus print of a rise in the annual inflation rate to 6.8% will likely reinforce the current market pricing of potentially three rate hikes in 2022.”

“If today’s report sees a further notable shift in the underlying, less volatile components of inflation it will raise further concerns at the Fed that the move back lower will take longer.”

“Another bad inflation print would likely see investors reconsider the assumed peak for the fed funds rate and could prompt a further flattening of the yield curve with increased concerns over the need for more aggressive tightening cutting short the length of this economic expansion. However, it is hard to envisage a market panic today.”

“A higher than expected inflation print could well see some further bear flattening of the UST bond curve which would likely reinforce USD strength over the short-term.”

See – US CPI Preview: Forecasts from nine major banks, more acceleration?